Google, Wal-Mart Going After Banks With Consumer, Commercial Lending Programs

Retail, tech giants inch into financial services market

Yvonne Weideman leaves the WalMart in Cranberry, Pa., with her new television as other holiday shoppers go through the checkout aisles behind her on Friday, Nov. 25, 2005.
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An increasing number of companies known more for their retail prowess or Web expertise are venturing into a different kind of business lately: consumer and commercial banking.

Big-box retailer Wal-Mart announced this week it will offer a prepaid credit card and debit account with American Express that will give users all the fancy features — such as mobile deposits — they would expect with a traditional bank account, according to the New York Times.

Days before, search-engine giant Google announced its expansion into financial services, offering businesses in the United Kingdom loans up to $10,000 to buy Google AdWords, according to the Financial Times. Amazon, another giant in digital retail, is also venturing into the commercial lending space, offering lines of credit to small businesses that are heavy site users. Amazon's foray into commercial lending is an attempt to help sellers obtain cash faster than they would be able to from a traditional lender or bank, an Amazon spokesman told the Wall Street Journal.

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"This is one of the major trends happening right now in financial services," says Dan O'Malley, founder and CEO of PerkStreet Financial, an online banking institution. "Money has gone digital. The core unit of banking in our economy is not paper. Companies that are digital are at a distinct advantage in the current financial services ecosystem."

No longer are banks the sole proprietors of credit and other financial tools. Big companies with experience operating in the increasingly fast-paced and complex digital world are wading further into financial services, attracting everyone from credit-hungry small business owners to consumers looking to escape fee-heavy big banks.

But while companies such as Wal-Mart and Amazon are expanding into territory that has traditionally been exclusive to banks, they're doing so in a very targeted manner.

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"Outside of very limited products, most of these big players need to enter the space with partners," O'Malley says, citing Wal-Mart's recent joint venture with American Express and past projects with MoneyGram and Green Dot. "They are not creating the products themselves."

It's too soon to say whether companies like Wal-Mart or Google will overtake the deeply ingrained culture of branch banking, but with increasing debit card and ATM fees, banks aren't doing themselves any favors. Products such as prepaid, reloadable cards have long been used by those unable or unwilling to get a checking account. With increased access to such products, experts only expect consumers to continue to use these non-traditional financial services.

"Consumers continue to adopt financial services outside of banks in pretty large numbers," O'Malley says. "Big banks continue to cater to the wealthy and medium-sized banks continue to cling onto bricks-and-mortar branches, and because of that, the average consumer is looking for better options."

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Small businesses, too, are looking for better options in the current credit-crimped environment. Unable to get loans through traditional routes, many smaller companies have seen their lending options dwindle.

But firms such as Google and Amazon see the potential benefit in lending to small businesses that use their services.

"If you can extend credit to people you are doing business with, it can make their business better and then your business better," O'Malley says.

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Freeing up credit also has broader implications for the health of the economy. Small-business lending never really recovered in the wake of the recession, causing a primary engine of job creation—hiring by small business—to languish, prolonging the nation's unemployment problems.

According to O'Malley, most of the economic growth in recent years has been from the services sector and online business, neither of which are traditional lending sectors for branch banks. With lending services from Google and Amazon, a portion of that void might be filled and could help once again re-energize small business.